Archives for Credits

We are entering the holiday season – Thanksgiving, Christmas, and New Year’s. Homes will be busy with holiday shopping, entertaining family and friends, and lots of holiday decorations. Before you know it, it will be time to file your 2017 taxes.

Take a few moments now to collect the tax-related paperwork that reflect the special events that happened in your life this year, and put it safely away for January.

Here are some events to consider, and some items to collect now:

Did you buy or sell a home? A copy of your mortgage and closing documents

Did you have any casualty, theft or loss? A copy of all paperwork relating to the event

Did you get married? Social security cards

Did you get divorced or separated? A copy of the divorce decree or separation agreement, showing child support, alimony, and property settlement arrangements

Did you have any medical expenses? A copy of ALL unreimbursed receipts from any medical provider, pharmacy, and insurance provider

Did you move? Old and new address, and receipts for ALL expenses related to the move

Did you have a baby? Date of Birth, and Social Security Number (if you have one)

Did you start a new job? Receipts related to a new job search, or anything related to you getting the new job.

Did you or someone in your family attend school (beyond high school)? Receipts for all school related expenses including tuition, room and board, books, and other items

Did you start a new business? This list is VERY long. I recommend you visit our website and review the July 2017 Client Newsletter, which lists much of the paperwork needed to record new business expenses.

Did you donate to a charity/non-profit/religious organization? A copy of your receipt is needed.

Did you pay for daycare? You will need either the name and SSN of the person (if an individual), or the name, address, and EIN or the business or organization

Did you pay Personal Property Tax? A copy of the receipt

A copy of your 2016 Federal and State tax returns should be kept with your 2017 paperwork.

A copy of ANY other paperwork you feel is important, or you have questions about (“I wonder if this is deductible?”). It is far better to have a copy of an item you have a question about, than to later learn you need it but can’t find it.

A simple filing system to keep everything organized is to file:

Family (birth/marriage/divorce/daycare)

Home (sale/purchase/casualty/theft/loss)

Moving or job related

Medical

Business

Other/Miscellaneous

My BEST recommendation is – keep ALL of your receipts. As you can see from the brief list above, many normal events in your life have a tax implication. If you have a question about an expense, keep a receipt, and ask us when we prepare your tax returns.rns.

Many parents send their children to summer day camps while they work or look for work. The IRS urges those who do to save their paperwork for the Child and Dependent Care Tax Credit. Eligible taxpayers may be able claim it on their taxes in 2018 if they paid for day camp or for someone to care for a child, dependent or spouse during 2017.

Here are a few key facts to know about this credit:

Qualifying PersonThe care must have been for “qualifying persons.” A qualifying person can be a child under age 13. A qualifying person can also be a spouse or dependent who lived with the taxpayer for more than half the year and is physically or mentally incapable of self-care.

Work-Related ExpensesThe care must have been necessary so the taxpayer could work or look for work. For those who are married, the care also must have been necessary so a spouse could work or look for work. This rule does not apply if the spouse was disabled or a full-time student.

Earned IncomeThe taxpayer — and their spouse if married filing jointly — must have earned income for the tax year. Special rules apply to a spouse who is a student or disabled.

Credit Percentage/Expense LimitsThe credit is worth between 20 and 35 percent of allowable expenses. The percentage depends on the income amount. Allowable expenses are limited to $3,000 for care of one qualifying person. The limit is $6,000 if the taxpayer paid for the care of two or more.

Care Provider InformationThe name, address and taxpayer identification number of the care provider must be included on the return. The childcare provider cannot be the taxpayer’s spouse, dependent or the child’s parent.

Dependent Care BenefitsIf you receive dependent care benefits from your employer, special rules apply. You can send us an email with your questions, or review IRS Form 2441, Child and Dependent Care Expenses for more information on the rules.

Special CircumstancesSince every family is different, the IRS has a series of exceptions to the rules in the qualification process. These exceptions allow a greater number of families to take advantage of the credit. For more information, send us an email or see IRS Publication 503, Child and Dependent Care Expenses.

Even if the childcare provider is a sitter in the home, taxpayers may qualify for the credit. Taxpayers who pay someone to come to their home and care for their dependent or spouse may be a household employer. They may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. If you feel that this might apply to you, contact our office.

Are you or your dependents attending a college or university? If so, you may be able to claim an education credit on your return.

An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: The American Opportunity Tax Credit and The Lifetime Learning Credit.

Who can claim an education credit?

There are additional rules for each credit, but you must meet all three of the following for both:

You, your dependent or a third party pays qualified education expenses for higher education.

An eligible student must be enrolled at an eligible educational institution.

The eligible student is yourself, your spouse or a dependent you list on your tax return.

Who cannot claim an education credit?

Someone else, such as your parents, list you as a dependent on their tax return

Your filing status is married filing separately

You already claimed or deducted another higher education benefit using the same student or same expenses.

You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes.

American Opportunity Tax Credit

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

To be eligible for AOTC, the student must:

Be pursuing a degree or other recognized education credential

Be enrolled at least half time for at least one academic period beginning in the tax year

Not have finished the first four years of higher education at the beginning of the tax year

Not have claimed the AOTC or the former Hope credit for more than four tax years

Not have a felony drug conviction at the end of the tax year

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses–including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

To claim a LLC, you must meet all three of the following:

You, your dependent or a third party pay qualified education expenses for higher education

You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution

The eligible student is yourself, your spouse or a dependent you listed on your tax return

There are a few more rules and limitations on these credits. If you believe you will be eligible for either of these credits, please let us know when we start your return.